Access to Credit and Aggregate Consumption Function

44476

This paper examines the aggregate consumption function for Turkey considering changes in credit regimes. The findings suggest that changes in access to domestic credit substantially affect both short- and long-run dynamics between aggregate consumption and macroeconomic variables. They show that the financial variables have a relatively strong effect on aggregate consumption, and the effect of income on aggregate consumption decreases in the recent period [2003-2013] which is characterized by the loose-credit regime. Furthermore, the results suggest that fluctuations in the aggregate consumption are primarily driven by the financial shocks rather than the income shocks during this period. Overall, with greater access to domestic credit, in the recent decade, the link between aggregate consumption and financial variables strengthens, and thereby the excess sensitivity of aggregate consumption to income declines in Turkey. This implies that policy makers should mainly focus on the financial variables to curb the rapid domestic consumption growth.

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Aggregate Consumption , Income , Interest Rate , Credit , Access to Credit , Cointegration

Ege Academic Review (EAR)

252

Ege Academic Review (EAR)